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cvet-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2021


☐			Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____________ to _____________

Commission File Number: 001-38794

COVETRUS, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware						83-1448706
(State or other jurisdiction of incorporation)						(I.R.S. Employer Identification No.)

7 Custom House Street

Portland, ME 04101

Tel: (888) 280-2221

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

CVET

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

The registrant had 137,783,356 shares of common stock outstanding as of October 29, 2021.

Table of Contents

TABLE OF CONTENTS


			Page
Glossary of Defined Terms and Abbreviations for our Form 10-K and Form 10-Q			3
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Balance Sheets			5
Statements of Operations			6
Statements of Comprehensive Income (Loss)			7
Statements of Shareholders' Equity			8
Statements of Cash Flows			10
Notes to Condensed Consolidated Financial Statements
Note 1: Business Overview and Significant Accounting Policies			11
Note 2: Business Acquisitions			12
Note 3: Segment Data			12
Note 4: Revenue from Contracts with Customers			16
Note 5 : Earnings (Loss) Per Share			17
Note 6 : Commitments and Contingencies			17
Note 7: Income Taxes			18
Note 8: Fair Value			18
Note 9: Derivatives			19
Note 10 : Accumulated Other Comprehensive Income (Loss)			20
Note 1 1 : Redeemable Non-controlling Interests			21

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			37
Item 4. Controls and Procedures			38

PART II - OTHER INFORMATION
Item 1. Legal Proceedings			39
Item 1A. Risk Factors			39
Item 2. Unregistered Sales of Securities and Use of Proceeds			39

Item 6. Exhibits			2
Signatures			3


Covetrus, Inc. 2021 Q3 Form 10-Q			2

Table of Contents

Glossary of Defined Terms and Abbreviations from our Form 10-K and Form 10-Q


AAFCO			Association of American Feed Control Officials
Acquisition*			Our acquisition of Vets First Choice in an all-stock transaction
Adjusted EBITDA*			Adjusted EBITDA is the segment measure of profit or loss reported to the CODM. Adjusted EBITDA excludes share-based compensation, strategic consulting, transaction costs, formation of Covetrus expenses, separation programs and executive severance, carve-out operating expenses, certain IT infrastructure expenses necessary to establish ourselves as a newly public company, goodwill impairment charges, capital structure-related fees, operating lease right-of-use asset impairments, the proportionate share of the adjustments of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100%, managed exits from businesses we are exiting or closing, and other income and expense items, net. Non-GAAP Adjusted EBITDA on a total segment basis is reconciled in Note 3 - Segment Data as required by ASC 280
AIP*			Annual Incentive Plan
Investment and Shareholders Agreement*			The Investment and Shareholders Agreement of Distrivet, S.A. executed on January 13, 2020
Animal Health Business*			Former Parent's spun-off animal-health business
Animal Owners*			Clients of our Customers
APAC			Asia Pacific
AppointMaster*			AppointMaster, LLC
APVMA			Australian Pesticides and Veterinary Medicines Authority
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
B/(W)			Better/(Worse)
BEAT			Base Erosion & Anti-Abuse Tax
CEO			Chief Executive Officer
CARES			Coronavirus Aid, Relief, and Economic Security Act
CCPA			California Consumer Privacy Act
CFO			Chief Financial Officer
CODM			Chief Operating Decision Maker
COVID-19			Novel Coronavirus Disease 2019
Credit Facilities*			On February 7, 2019, we entered into a $1.5 billion syndicated credit agreement with a group of lenders for a five-year term
Customers*			Veterinarians and animal-health practitioners
CVM			Center for Veterinary Medicine
DEA			U.S. Drug Enforcement Administration
DGCL			Delaware General Corporation Law
Defendants*			The Company, our Former Parent, our former Chief Executive Officer and President, and our former Chief Financial Officer, collectively
Distribution*			All the shares of our common stock that were then owned by our Former Parent were distributed to its stockholders of record as of January 17, 2019. Concurrent with the Distribution, we paid a cash dividend of $1.2 billion to our Former Parent from loan proceeds from our newly established Term Loan Facility
Distrivet*			On April 30, 2020, we combined our subsidiary, SAHS, with Distrivet, S.A. to form a leading animal-health provider on the Iberian Peninsula. We own 50.01% of the company, called Distrivet, a Covetrus company
EBITDA			Earnings Before Interest, Taxes, Depreciation, and Amortization
EFTA			European Free Trade Area
EFSA			European Food Safety Authority
EMA			European Medicines Agency
EPA			Environmental Protection Agency
EPS			Basic earnings (loss) per common share
ESG			Environmental, social, and corporate governance
ESPP			Employee Stock Purchase Plan
Exchange Act			Securities Exchange Act of 1934, as amended
FCMA			Fellow Chartered Management Accountant
FDA			U.S. Food and Drug Administration


Covetrus, Inc. 2021 Q3 Form 10-Q			3

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FDII			Foreign-derived Intangible Income
Form 10-K			Audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2020
Form 10-Q or Report			Quarterly Report on Form 10-Q
Former Parent*			Henry Schein, Inc.
FTC			Federal Trade Commission
GAAP			Generally Accepted Accounting Principles in the United States of America
GDPR			EU General Data Protection Regulation
GFI			Guidance for Industry
GILTI			Global Intangible Low-Taxed Income
Global Technology Solutions or GTS*			The aggregation of our software services with our prescription management platform and related pharmacy services
IRS			Internal Revenue Service
ITGC			Information Technology General Controls
LIBOR			London Interbank Offered Rate
NM			Not Meaningful
NYSE			New York Stock Exchange
NZ EPA			New Zealand Environmental Protection Authority
OSHA			Department of Labor’s Occupational Safety and Health Administration
PSU			Performance Stock Unit
Revolving Credit Facility*			$300 million revolving line of credit for working capital and general corporate purposes
RSA			Restricted Stock Award
RSU			Restricted Stock Unit
SAHS*			Spain Animal Health Solutions S.L.U.
scil			scil animal-care business
SEC			Securities and Exchange Commission
Separation*			In anticipation of the spin-off, affiliates of Covetrus purchased from certain minority holders their ownership interests in the applicable operating companies of the Animal Health Business. On February 7, 2019, our Former Parent completed the spin-off of its Animal Health Business and transferred the applicable assets, liabilities, and ownership interests to us
Series A Preferred Shares*			7.50% Series A Convertible Preferred Stock
SG&A			Selling, general and administrative expenses
Share Sale*			On February 7, 2019 and prior to the Distribution, we sold $361 million in shares to accredited institutional investors. The proceeds from the Share Sale were paid to us and distributed to our Former Parent
SMB			Small or Medium-Sized Business
Term Loan Facility*			$1.2 billion term loan facility
Transactions*			Collectively the following events, effective February 7, 2019, Vets First Choice became a wholly-owned subsidiary of Covetrus, Inc. (f/k/a HS Spinco, Inc.), a company formed by our Former Parent in connection with the spin-off of the Animal Health Business and combination with Vets First Choice
TSA			Transition Service Agreements
U.K.			United Kingdom
USD			U.S. Dollar
USDA			U.S. Department of Agriculture
VCP*			Veterinary Care Plans
Vets First Choice*			Direct Vet Marketing, Inc. (d/b/a Vets First Choice)
VMD			Veterinary Medicines Directorate
VSG*			Veterinary Study Groups, Inc.
Covetrus, Company, we, us, our, or ourselves			Covetrus, Inc. and its consolidated subsidiaries, collectively
XBRL			eXtensible Business Reporting Language
*Defined term or abbreviation is specific to Covetrus


Covetrus, Inc. 2021 Q3 Form 10-Q			4

Table of Contents

PART I

Item 1. Condensed Consolidated Financial Statements

COVETRUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share amounts)


	September 30, 2021		December 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	187	$	290
Accounts receivable, net of allowance of $4 and $5	491		507
Inventories, net	552		530
Other receivables	77		67
Prepaid expenses and other	44		26
Total current assets	1,351		1,420
Non-current assets:
Property and equipment, net of accumulated depreciation of $125 and $106	127		116
Operating lease right-of-use assets, net	120		117
Goodwill	1,247		1,187
Other intangibles, net of accumulated amortization of $562 and $470	479		555
Investments and other	96		101
Total assets	$	3,420	$	3,496
LIABILITIES, MEZZANINE EQUITY, AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	428	$	411
Current maturities of long-term debt and other borrowings	46		1
Accrued payroll and related liabilities	62		67
Accrued taxes	37		37
Other current liabilities	141		175
Total current liabilities	714		691
Non-current liabilities:
Long-term debt and other borrowings, net	1,027		1,068
Deferred income taxes	18		28
Other liabilities	136		136
Total liabilities	1,895		1,923
Commitments and contingencies (Note 6)
Mezzanine equity:
Redeemable non-controlling interests (Note 11)	23		36
Shareholders' equity:
Common stock, $0.01 par value per share, 675,000,000 shares authorized; 137,731,865 shares issued and outstanding as of September 30, 2021; 136,017,964 shares issued and outstanding as of December 31, 2020	1		1
Accumulated other comprehensive loss (Note 10)	(80)		(66)
Additional paid-in capital	2,659		2,629
Accumulated deficit	(1,078)		(1,027)
Total shareholders’ equity	1,502		1,537
Total liabilities, mezzanine equity, and shareholders’ equity	$	3,420	$	3,496

See notes to unaudited condensed consolidated financial statements.


Covetrus, Inc. 2021 Q3 Form 10-Q			5

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COVETRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts) (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net sales (Note 4)	$	1,162	$	1,126	$	3,453	$	3,217
Cost of sales	946		929		2,807		2,625
Gross profit	216		197		646		592
Operating expenses:
Selling, general and administrative	220		224		662		642


Operating income (loss)	(4)		(27)		(16)		(50)
Other income (expense):
Interest expense, net	(8)		(10)		(26)		(37)


Other, net	(2)		5		(2)		79
Income (loss) before taxes	(14)		(32)		(44)		(8)
Income tax benefit (expense) (Note 7)	10		(3)		(7)		(6)

Net income (loss)	(4)		(35)		(51)		(14)
Net (income) loss attributable to redeemable non-controlling interests	—		—		—		(1)
Net income (loss) attributable to Covetrus	$	(4)	$	(35)	$	(51)	$	(15)

Earnings (loss) per share: (Note 5)
Basic	$	(0.03)	$	(0.33)	$	(0.37)	$	(0.18)
Diluted	$	(0.03)	$	(0.33)	$	(0.37)	$	(0.18)
Weighted-average common shares outstanding:
Basic	137		116		138		113
Diluted	137		116		138		113

See notes to unaudited condensed consolidated financial statements.


Covetrus, Inc. 2021 Q3 Form 10-Q			6

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COVETRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions) (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income (loss)	$	(4)	$	(35)	$	(51)	$	(14)
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)	(13)		14		(17)		(2)

Gain (loss) on derivative instruments	(1)		(1)		3		(8)

Total other comprehensive income (loss)	(14)		13		(14)		(10)
Comprehensive income (loss)	(18)		(22)		(65)		(24)
Comprehensive (income) loss attributable to redeemable non-controlling interests:
Net (income) loss	—		—		—		(1)
Foreign currency translation (gain) loss	—		—		—		(2)
Comprehensive (income) loss attributable to redeemable non-controlling interests	—		—		—		(3)
Comprehensive income (loss) attributable to Covetrus	$	(18)	$	(22)	$	(65)	$	(27)

See notes to unaudited condensed consolidated financial statements.


Covetrus, Inc. 2021 Q3 Form 10-Q			7

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COVETRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In millions, except share amounts) (Unaudited)


	Three Months Ended September 30, 2021
	Common Stock			Accumulated Other Comprehensive Income (Loss)		Additional Paid-in Capital		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount
Balance at June 30, 2021	137,359,704	$	1	$	(66)	$	2,641	$	(1,074)	$	1,502
Net income (loss) attributable to Covetrus	—	—		—		—		(4)		(4)


Issuance of shares in connection with acquisitions	146,633	—		—		4		—		4

Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes	225,528	—		—		—		—		—

Share-based compensation	—	—		—		14		—		14



Other comprehensive income (loss)	—	—		(14)		—		—		(14)
Balance at September 30, 2021	137,731,865	$	1	$	(80)	$	2,659	$	(1,078)	$	1,502

	Nine Months Ended September 30, 2021
	Common Stock			Accumulated Other Comprehensive Income (Loss)		Additional Paid-in Capital		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount
Balance at December 31, 2020	136,017,964	$	1	$	(66)	$	2,629	$	(1,027)	$	1,537
Net income (loss) attributable to Covetrus	—	—		—		—		(51)		(51)


Issuance of shares in connection with acquisitions	146,633	—		—		4		—		4

Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes	1,567,268	—		—		(11)		—		(11)
Redeemable non-controlling interest redemption value adjustment	—	—		—		(2)		—		(2)
Share-based compensation	—	—		—		39		—		39



Other comprehensive income (loss)	—	—		(14)		—		—		(14)
Balance at September 30, 2021	137,731,865	$	1	$	(80)	$	2,659	$	(1,078)	$	1,502

See notes to unaudited condensed consolidated financial statements.


Covetrus, Inc. 2021 Q3 Form 10-Q			8

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COVETRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)

(In millions, except share amounts) (Unaudited)


	Three Months Ended September 30, 2020
	Common Stock			Accumulated Other Comprehensive Income (Loss)		Additional Paid-in Capital		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount
Balance at June 30, 2020	112,674,657	$	1	$	(107)	$	2,362	$	(983)	$	1,273
Net income (loss) attributable to Covetrus	—	—		—		—		(35)		(35)



Redeemable non-controlling interest redemption value adjustment	—	—		—		(6)		—		(6)

Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes	331,297	—		—		2		—		2
Share-based compensation	—	—		—		11		—		11

Series A preferred stock cash dividend	—	—		—		—		(4)		(4)
Conversion of Series A preferred stock	14,357,478	—		—		156		—		156
Other comprehensive income (loss)	—	—		16		—		—		16

Balance at September 30, 2020	127,363,432	$	1	$	(91)	$	2,525	$	(1,022)	$	1,413

	Nine Months Ended September 30, 2020
	Common Stock			Accumulated Other Comprehensive Income (Loss)		Additional Paid-in Capital		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount
Balance at December 31, 2019	111,620,507	$	1	$	(86)	$	2,339	$	(1,001)	$	1,253
Net income (loss) attributable to Covetrus	—	—		—		—		(15)		(15)
Redeemable non-controlling interest redemption value adjustment	—	—		—		(6)		—		(6)
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes	1,385,447	—		—		6		—		6
Share-based compensation	—	—		—		30		—		30
Series A preferred stock cash dividend	—	—		—		—		(6)		(6)
Conversion of Series A preferred stock	14,357,478	—		—		156		—		156
Other comprehensive income (loss)	—	—		(5)		—		—		(5)

Balance at September 30, 2020	127,363,432	$	1	$	(91)	$	2,525	$	(1,022)	$	1,413

See notes to unaudited condensed consolidated financial statements.


Covetrus, Inc. 2021 Q3 Form 10-Q			9

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COVETRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions) (Unaudited)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	(51)	$	(14)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization	128		124
Amortization of right-of-use assets	21		18

Operating lease right-of-use asset impairment	—		8

Gain on divestiture of a business	—		(72)
Share-based compensation expense	39		30

Benefit for deferred income taxes	(16)		(7)



Amortization of debt issuance costs	4		4
Loss on managed exit of a business	—		8
Other	4		1
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	6		(77)
Inventories, net	(33)		99
Other assets and liabilities	(58)		(48)
Accounts payable and accrued expenses	14		(63)
Net cash provided by (used for) operating activities	58		11
Cash flows from investing activities:
Purchases of property and equipment	(38)		(40)
Payments related to equity investments and business acquisitions, net of cash acquired	(81)		(13)
Proceeds from divestiture of a business, net	—		104
Proceeds from sale of property and equipment	—		4
Net cash provided by (used for) investing activities	(119)		55
Cash flows from financing activities:
Proceeds from revolving credit facility	—		190
Repayment of revolving credit facility	—		(190)

Principal payments of debt	—		(62)
Debt issuance and amendment costs	—		(5)


Proceeds from share-based awards	4		7

Tax payments related to share-based awards	(15)		(1)


Proceeds from issuance of Series A preferred stock	—		250
Series A preferred stock issuance costs	—		(6)
Series A preferred stock dividend	—		(6)
Distributions to non-controlling shareholders	(2)		—
Deferred payments related to equity investments and business acquisitions	(13)		(17)
Payments related to the buy-out of non-controlling interests in subsidiaries of Covetrus	(11)		—
Net cash provided by (used for) financing activities	(37)		160
Effect of exchange rate changes on cash and cash equivalents	(5)		(1)
Net change in cash and cash equivalents	(103)		225
Cash and cash equivalents, beginning of period	290		130
Cash and cash equivalents, end of period	$	187	$	355

Supplemental disclosures of non-cash investing and financing activities:
Conversion of Series A preferred stock	$	—	$	156
Right-of-use assets obtained in exchange for new operating lease liabilities	$	26	$	60

Deconsolidation of a subsidiary	$	—	$	15
Common stock issued in business acquisition	$	4	$	—

See notes to unaudited condensed consolidated financial statements.


Covetrus, Inc. 2021 Q3 Form 10-Q			10

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COVETRUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions) (Unaudited)

1. BUSINESS OVERVIEW AND SIGNIFICANT ACCOUNTING POLICIES

Business

We are a global animal-health technology and services company dedicated to supporting the companion, equine, and large-animal veterinary markets.

Basis of Presentation and Principles of Consolidation

The accompanying balance sheet as of December 31, 2020, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2021, have been prepared in accordance with applicable rules and regulations of the SEC for interim financial reporting. Pursuant to those rules and regulations, we omitted certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP.

In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all recurring adjustments and transactions necessary for a fair statement of our financial position, results of operations, and cash flows for the interim periods presented. Such operating results are not necessarily indicative of annual or future results. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Form 10-K filed with the SEC on March 1, 2021.

The accompanying unaudited condensed consolidated financial statements include the operations of the Company, as well as those of our wholly-owned and majority-owned subsidiaries from their respective dates of inception or acquisition. All significant intercompany transactions and balances were eliminated in consolidation. Investments in unconsolidated affiliates, which are 20% to 50.01% owned, or investments of less than 20% in which we could influence the operating or financial decisions, are accounted for under the equity method.

Certain prior period amounts were reclassified or rounded to conform to the presentation of the current period.

Accounting Pronouncements

•As of January 1, 2021, we adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which removes specific technical exceptions to general principles found in Topic 740, items that often produce information that investors have difficulty understanding, and simplifies the accounting for income taxes. The adoption of this ASU did not have a material impact on the results of our condensed consolidated financial statements.

•ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference LIBOR. The standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. Our debt agreements that utilize LIBOR have not yet discontinued the use of LIBOR and, therefore, this ASU is not yet effective for us. The banking syndicate associated with our Credit Facilities intends to cease using the 1-week and 2-month USD LIBOR at the end of 2021, with the other USD Tenors to cease June 30, 2023. We will continue to monitor, and, to the extent our Credit Facilities require amendment to reflect a replacement rate prior to December 31, 2022, we will evaluate the benefits of adopting this ASU.


Covetrus, Inc. 2021 Q3 Form 10-Q			11

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COVETRUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions) (Unaudited)

2. BUSINESS ACQUISITIONS

During the three and nine months ended September 30, 2021, we completed acquisitions of VCP, a leading platform in veterinary wellness plan administration, and AppointMaster, a provider of integrated communications solutions for veterinary practices, for an aggregate purchase price of $85 million. These acquisitions are intended to provide our Customers with new tools to foster stronger relationships with their Animal Owner clients by delivering better business and healthcare outcomes. The allocation of the aggregate purchase price resulted in goodwill of $60 million and other intangible assets, including technology, of $31 million. The results of operations have been included in our North American segment since the acquisition dates. All acquisition expenses incurred were not material. The transactions are not material business combinations or material to our condensed consolidated financial statements individually or in the aggregate.

3. SEGMENT DATA

The following tables reflect our segment and corporate information and reconciles non-GAAP Adjusted EBITDA for reportable segments to consolidated Net income (loss) attributable to Covetrus:


	Three Months Ended September 30, 2021
	North America		Europe		APAC & Emerging Markets		Corporate		Eliminations		Total
Net sales	$	697	$	353	$	116	$	—	$	(4)	$	1,162
Adjusted EBITDA	$	55	$	16	$	10	$	(23)	$	—	$	58


Reconciliation of Net income (loss) attributable to Covetrus to Non-GAAP Adjusted EBITDA:
Net income (loss) attributable to Covetrus											$	(4)
Plus: Depreciation and amortization											42
Plus: Interest expense, net											8
Plus: Income tax (benefit) expense											(10)
Earnings (loss) before interest, taxes, depreciation, and amortization											36
Plus: Share-based compensation											14
Plus: Strategic consulting (a)											2
Plus: Transaction costs (b)											1
Plus: Separation programs and executive severance											3





Plus: Equity method investment and non-consolidated affiliates (c)											1



Plus: Other items, net											1

Non-GAAP Adjusted EBITDA											$	58


(a) Includes third-party consulting services
(b) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures
(c) Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100%


Covetrus, Inc. 2021 Q3 Form 10-Q			12

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COVETRUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions) (Unaudited)


	Three Months Ended September 30, 2020
	North America		Europe		APAC & Emerging Markets		Corporate		Eliminations		Total
Net sales	$	618	$	403	$	108	$	—	$	(3)	$	1,126
Adjusted EBITDA	$	45	$	19	$	8	$	(13)	$	—	$	59


Reconciliation of Net income (loss) attributable to Covetrus to Non-GAAP Adjusted EBITDA:
Net income (loss) attributable to Covetrus											$	(35)
Plus: Depreciation and amortization											41
Plus: Interest expense, net											10
Plus: Income tax (benefit) expense											3
Earnings (loss) before interest, taxes, depreciation, and amortization											19
Plus: Share-based compensation											11
Plus: Strategic consulting (a)											3
Plus: Transaction costs (b)											1
Plus: Formation of Covetrus (c)											4
Plus: Separation programs and executive severance											2

Plus: IT infrastructure											1


Plus: Equity method investment and non-consolidated affiliates (d)											1
Plus: Operating lease right-of-use asset impairment											8
Plus: France managed exit (e)											8

Plus: Other items, net											1
Non-GAAP Adjusted EBITDA											$	59

(a) Includes third-party consulting services
(b) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures
(c) Includes professional and consulting fees, duplicative costs associated with transition service agreements, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company
(d) Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100%
(e) Includes $7 million of severance costs and $1 million of other costs


Covetrus, Inc. 2021 Q3 Form 10-Q			13

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COVETRUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions) (Unaudited)


	Nine Months Ended September 30, 2021
	North America		Europe		APAC & Emerging Markets		Corporate		Eliminations		Total
Net sales	$	2,045	$	1,080	$	342	$	—	$	(14)	$	3,453
Adjusted EBITDA	$	166	$	57	$	29	$	(71)	$	—	$	181

Reconciliation of Net income (loss) attributable to Covetrus to Non-GAAP Adjusted EBITDA:
Net income (loss) attributable to Covetrus											$	(51)
Plus: Depreciation and amortization											128
Plus: Interest expense, net											26
Plus: Income tax (benefit) expense											7
Earnings (loss) before interest, taxes, depreciation, and amortization											110
Plus: Share-based compensation											39
Plus: Strategic consulting (a)											16
Plus: Transaction costs (b)											3

Plus: Formation of Covetrus (c)											2
Plus: Separation programs and executive severance											5



Plus: Equity method investments and non-consolidated affiliates (d)											2



Plus: Other items, net											4

Non-GAAP Adjusted EBITDA											$	181

(a) Related to third-party consulting services. Included within this line item are variable performance fees earned for services rendered under a third-party consulting agreement. This agreement was amended in April 2021 and, in connection with such amendment, the services were completed and fees were fully accrued for as of June 30, 2021
(b) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures
(c) Includes professional and consulting fees, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company
(d) Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100%


Covetrus, Inc. 2021 Q3 Form 10-Q			14

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COVETRUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions) (Unaudited)


	Nine Months Ended September 30, 2020
	North America		Europe		APAC & Emerging Markets		Corporate		Eliminations		Total
Net sales	$	1,771	$	1,166	$	288	$	—	$	(8)	$	3,217
Adjusted EBITDA	$	141	$	53	$	20	$	(44)	$	—	$	170

Reconciliation of Net income (loss) attributable to Covetrus to Non-GAAP Adjusted EBITDA:
Net income (loss) attributable to Covetrus											$	(15)
Plus: Depreciation and amortization											124
Plus: Interest expense, net											37
Plus: Income tax (benefit) expense											6
Earnings (loss) before interest, taxes, depreciation, and amortization											152
Plus: Share-based compensation											30
Plus: Strategic consulting (a)											13
Plus: Transaction costs (b)											8
Plus: Formation of Covetrus (c)											17
Plus: Separation programs and executive severance											4

Plus: IT infrastructure											3


Plus: Equity method investment and non-consolidated affiliates (d)											1
Plus: Operating lease right-of-use asset impairment											8
Plus: France managed exit (e)											8
Plus: Capital structure											2
Less: Other items, net (f)											(76)
Non-GAAP Adjusted EBITDA											$	170

(a) Includes third-party consulting services
(b) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures
(c) Includes professional and consulting fees, duplicative costs associated with transition service agreements, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company
(d) Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100%
(e) Includes $7 million of severance costs and $1 million of other costs
(f) Includes a $72 million gain on the divestiture of scil and a $1 million gain on the deconsolidation of SAHS

See Note 4 - Revenue from Contracts with Customers for our revenue disaggregated by major product category and reportable segment.


Covetrus, Inc. 2021 Q3 Form 10-Q			15

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COVETRUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions) (Unaudited)

4. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The tables below present our revenue disaggregated by major product category and reportable segment.



	Three Months Ended September 30, 2021
	Supply Chain Services		Software Services		Prescription Management		Eliminations		Total
North America	$	570	$	20	$	129	$	(22)	$	697
Europe	354		3		—		(4)		353
APAC & Emerging Markets	114		2		—		—		116
Eliminations	(4)		—		—		—		(4)
Total Net sales	$	1,034	$	25	$	129	$	(26)	$	1,162

	Three Months Ended September 30, 2020
	Supply Chain Services		Software Services		Prescription Management		Eliminations		Total
North America	$	512	$